4. 9.

Setting the lease Price [LO 27.3] An asset costs $630 000 and will be depreciated in a straight-line manner over its three-year life. It will have no salvage value. The lessor can borrow at 6 per cent and the lessee can borrow at 9 per cent. The corporate tax rate is 30 per cent for both companies.

1. How does the fact that the lessor and lessee have different borrowing rates affect the calculation of the NAL? 2. What set of lease payments will make the lessee and the lessor equally well off?

3. Assume that the lessee pays no taxes and the lessor is in the 30 per cent tax bracket. For what range of lease payments does the lease have a positive NPV for both parties?